Rebuilding Fed rate hike bets offered the US Dollar a lifeline late last week. The currency briefly dropped to a four-week low in the wake of timid testimony from Fed Chair Jerome Powell. Stronger-than-expected fourth quarter GDP data marked a reversal however, pushing priced-in policy bets implied in Fed Funds futures away from the dovish side of the spectrum. That sent bond yields and USD higher in tandem.

Interestingly, the return of yield-based appeal has not diminished the Greenback’s ability to capitalize on haven-seeking capital flows. A round of disappointing economic data on Friday cooled risk appetite, punishing stocks but boosting the Dollar. The manufacturing ISM gauge fell short of forecasts while flash readings for Markit’s manufacturing PMI and the UofM consumer confidence measure were downgraded.

The week ahead offers plenty of opportunities for data-driven volatility. The service-sector ISM survey, the Fed’s Beige Book survey of regional economic conditions and February’s labor market statistics are just the highlights on a packed docket of scheduled releases. If last week’s dynamics remain in force, USD may capitalize if the outcomes are materially divergent from forecasts, in either direction.

External influences are also plentiful. China will probably lower its target for economic growth and Australian GDP data is expected to show deceleration in the trend growth rate. Meanwhile, policy announcements from the RBA, BOC and ECB are likely to sound the alarm about a downturn in the global business cycle. The Dollar may be buoyed if all this translates into a risk-off bias across financial markets.

— Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter